SEC-Citigroup Fraud Settlement Gets New Life

A federal appeals court stopped
just short of throwing out a judge's controversial rejection of
the U.S. Securities and Exchange Commission's $285 million
settlement with Citigroup Inc in a fraud case.

March 15, 2012

(Adds details, comments)

March 15 - A federal appeals court stopped
just short of throwing out a judge's controversial rejection of
the U.S. Securities and Exchange Commission's $285 million
settlement with Citigroup Inc in a fraud case.

The 2nd U.S. Circuit Court of Appeals said that U.S.
District Judge Jed Rakoff in Manhattan appeared to have failed
to give proper deference to the SEC, and may have overlooked the
potential that Citigroup did nothing wrong.

While saying it needed to hear further arguments, the 2nd
Circuit said there was a "strong" likelihood that Rakoff's
decision would be overturned.

The accord, announced in October, was intended to resolve
civil fraud charges that Citigroup sold $1 billion of risky
mortgage-linked securities in 2007 without telling investors
that it was betting against the debt, resulting in more than
$700 million of losses.

Rakoff rejected the settlement on Nov. 28. He said the SEC's
failure to require Citigroup to admit or deny the charges left
him no way to know whether the settlement was fair.

That part of the ruling called into question the SEC's
decades-long practice of not requiring settling companies to
admit or deny its charges.

He also called the $285 million payout "pocket change" for
the third-largest U.S. bank, and said the accord did not serve
the public interest.

The SEC and Citigroup had no immediate comment. Rakoff, who
is sitting with the 2nd Circuit this week to hear cases, was
also not immediately available for comment.

The case is SEC v. Citigroup Global Markets Inc, 2d U.S.
Circuit Court of Appeals, No. 11-5227.
(Reporting By Jonathan Stempel in New York; Additional
reporting by Grant McCool in New York and Aruna Viswanatha in
Washington, D.C.; Editing by Mark Porter and Gerald E.
McCormick)